Professional indemnity insurance (PII) continues to dominate the legal agenda after the Solicitors Regulation Authority (SRA) yesterday (28 January) released figures revealing the market share of participating law firm insurers and separately launched a consultation that could see only rated insurers able to provide PII cover.
The regulatory body kick-started an eight-week consultation over whether all those applying to be added to a participating insurers list should have a financial strength rating of at least B from a recognised rating agency, representing a u-turn on its earlier policy to allow an open market.
The consultation follows a preliminary review by insurance broker and risk specialist Marsh after 1,300 firms were put at risk from the collapse of Latvian insurer Balva last summer, which suggests that the ‘disorderly exit’ of several insurers from the market may pose a significant risk to client protections and to legal services and its regulation.
The review also suggests that there may be inconsistencies in protections for clients depending on the status of the insurer.
Agnieszka Scott, SRA director of policy and strategy, said: ‘We have always resisted calls to insist that insurers have a rating. Recent events such as the growth of unrated insurers in the market and higher risks of insolvency have made us consider this afresh.
‘Our overriding objective is to ensure appropriate protection for consumers without driving unnecessary costs on law firms. This consultation will assist us in striking that balance.’
The consultation coincided with the publication by the SRA of figures on the market share of participating insurers, which reveal that Australian-based QBE has taken over as the leading insurer of solicitors, after securing 18.2% of the premiums paid for the primary layer of cover by firms last autumn, up from 12.9% in 2012/13.
XL Insurance, which has had the biggest market share in the last two years, received just 2.2% of premiums in 2013/14, compared to 16.5% the previous year, following its decision not to insure firms of up to and including three partners.
Travelers Insurance Co took the second largest proportion of market share with 12.3 %, up from just shy of 11% last year.
Two unrated insurers, Alpha and Elite, have seen their market share grow significantly in the last year, with Alpha taking a 6.5% market share this year compared to 3% in 2012/13, while Elite took just shy of 4%, up from 0.7% the year before.
Around 1,300 firms, the equivalent of around one in eight firms in England and Wales, were forced to find replacement PII insurance or face closure after Latvian authorities withdrew operating licences from domestic insurer Balva in June last year.
The SRA, which currently does not undertake any solvency checks on insurers or require a minimum level of financial security for participation in the solicitors’ PII market, has recently introduced a transparency requirement for all insurers, so they must disclose whether or not they have a financial security rating and the provider of this rating.